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published by the Center for State Policy and Leadership
at the University of Illinois Springfield

Monday, May 06, 2013

Cullerton to move union-backed pension bill this week

By Jamey Dunn

Senate Democrats have reached a deal with unions on pension changes after the House passed its own plan last week.

“Whenever you can get unions to agree on a major pension bill, you should codify it,” Senate President John Cullerton said today after presenting the bill to Democrats in a caucus meeting. Cullerton said he is optimistic that many Democrats in his chamber will vote in favor of the bill.
The proposal will be amended onto Senate Bill 2404. According to an overview from Senate Democrats, the legislation would give workers a choice about which benefits they want to sacrifice. Current employees would have three options:

Option 1
Employees would give up the current 3 percent compounded cost of living adjustment (COLA) for a flat 3 percent COLA that would be delayed for three years after retirement.
In exchange, the employees would receive access to retiree health care plans, and future raises would count toward their pensions. They would also have the option of enrolling in 401(k)-like plan to supplement their pensions.

Option 2
Under this option, employees would keep their compounded COLAs but would lose access to retiree health care, which is currently subsidized by the state. Their future raises would not count toward pension benefits

Option 3
Employees would keep their COLAs and access to retiree health care, but they would pay 2 percent more of their salaries to their retirement benefits. Their COLAs would be delayed for three years after retirement.

Employees who are retired or who have given notice of their retirement by Jan. 1, 2013, would have two options:

Option 2
They could still have access to retiree health care and a 3 percent compounded COLA, but the COLA would be frozen for two years. “The first year, they would have their COLA frozen; year two, the COLA would be back in there; year three, the COLA would be frozen; and then the COLA would go on as it should from then on,” said Aurora Democratic Sen. Linda Holmes, who sponsors the bill with Cullerton.

Holmes said the bill would not increase retirement ages for workers and would not include new revenue from closing tax loopholes.

The proposal would save less than the House plan, SB 1, which would cut pension benefits unilaterally instead of offering options to employees. Cullerton believes that employees must be given a choice for a proposal to be accepted by the courts. “We believe it’s the strongest argument for a bill to be constitutional.” He said that since the unions agreed on the bill, they do not plan to go to court over it. “When this bill is passed, the unions are not going to sue.” However, individual workers would be free to mount a legal challenge if it becomes law.

The We Are One union coalition released a statement today encouraging lawmakers to support the new plan. “The union coalition has made a great effort to ensure fairness for the public employees and retirees who did not cause this problem, to ensure the stability of the pension systems for future generations, and to offer a credible way forward. This agreement is our coalition's bottom line,” Michael Carrigan, president of the Illinois AFL-CIO, said in a written statement. “We continue to strongly oppose Speaker [Michael] Madigan's mega-bill, SB 1, which threatens to rob the retirement savings of teachers, police officers and others in public service, by 20-40 percent. His proposal is not only drastically unfair, but it is blatantly unconstitutional, rendering any advertised savings fictional. We urge lawmakers from both parties in both chambers to embrace the agreed bill and oppose SB 1.”

Madigan took a firm stance on the House floor last week, vowing to do all he could to get SB 1 through the process. He said of the union negotiations: “I don’t expect that they’ll be able to come to an agreement such that people will be prepared to back away from this bill. There’s two chambers here, and both chambers have to pass the same bill. The House has passed a bill, and so whatever the Senate does, I don’t think it would achieve the cost savings that the House bill does.”

Cullerton said it is difficult to calculate how much his plan would save because it would vary depending on which options employees and retirees choose. He said he expects it would be about $46 billion over the next 30 years, and $850 million in Fiscal Year 2015. That compares to SB 1, which is expected to save about $1.8 billion in the first fiscal year it goes into effect. However, Cullerton noted, “If that bill is declared unconstitutional, there’s zero savings.”

While he believes SB1 is unconstitutional, Cullerton said its passage in the House did help to move his negotiations with unions forward. “It has been much aided by the fact that the House and the speaker have pushed a bill over here, which has I think forced the unions to compromise. And I appreciate the fact that they have done it. It’s not easy because this is voluntarily agreeing to take away money from their members.” However, he denied that the deal was the result of some grand scheme between Madigan and him. “I wasn’t part of his negotiations with his caucus. I didn’t know what we were going to be able to accomplish with the unions, so I didn’t involve him in this negotiation. But now we have this agreement, and so now it’s time to see if we can reach an agreement between the two houses,” he said. “I’m optimistic. I think the unions have to go out now and explain this approach to their members [and] to the members of the House and the Senate [of] both parties.”
Cullerton said he expects bipartisan support of the bill. A spokesperson for Senate Republicans declined to comment, saying they had yet to see the proposal.

When asked if he planned to call SB 1 for a vote, Cullerton said. “Let’s first see what happens with this and see what the reaction is to this.” He said he plans to hold a hearing on SB 2404 in the Executive Committee, which is scheduled for 3 p.m. Wednesday, and bring the bill up for a floor vote on Thursday.

1 comment:

The Illinois education establishment and public sector unions have announced that a deal has been reached with Senate President Cullerton to slash accrued pension benefits in the state, in lieu of re-amortization of the debt, or an increase in state revenues sufficient to cover the debt service. Their plan includes a provision to take "fully-vested," accrued and contracted retiree pension COLA benefits. (The idea is to minimize their dues-paying member's future pension contributions by taking money from retirees.) This aspectof the proposal is unconstitutional on its face and will be struck down in court. (I recommend a severability clause in the bill.) Illinois retirees should ensure that the cost savings of the proposal, represented by the COLA-theft, are quantified. They will be surprised at the figure.

The education establishment and public unions in Montana also recently supported a "last minute deal" that curiously breaches retiree pension contracts. The Governor of Montana has stated that the Montana Legislature's taking of the COLA is unconstitutional, and that the retirees will win their case in court. The Colorado education establishment and public sector unions also supported the taking of fully-vested pension COLA benefits from Colorado PERA retirees in 2010. Last October, the Colorado Court of Appeals held that Colorado PERA retirees have a contractual right to the COLA benefit.

A pension COLA is simply method of providing a defined pension benefit. The fact that a state legislature has opted to deliver contracted pension benefits by means of a pension COLA annual "escalator" does not relieve a state government of its contractual obligation to pay the total, accrued, defined public pension benefit. Legislatures could just as well have created a statutory contract providing a larger monthly public pension annuity payment at retirement, with NO COLA.

To illustrate, if a legislature had, in the past, created a statutory pension contract providing that 90 percent of the total, defined pension benefit derived from the COLA "escalator" (for example, a small initial base benefit at retirement, perhaps 20 percent of final salary, but also a quite large COLA escalator, perhaps a 10 percent COLA) would any public pension attorney argue that the legislature should be able to break its contracts and take 90 percent of a worker's total, accrued pension benefit after 30 years of work? No.

Then, why do so many legislators believe that it is acceptable for a state to break its contracts and take a third or half of a retiree's total, accrued pension benefit?

Watch the February 22, 2013, the Ohio State University Moritz College of Law "Roundtable on Public Pension Reform" at this link:

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The bureau follows state government from the Capitol Press Room and writes articles for Illinois Issues magazine, published by the Center for State Policy and Leadership at the University of Illinois at Springfield.
Contact: illinois.issues@gmail.com